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From rising fuel costs to brokers' payment schedules, weather, and mechanical issues, there are plenty of challenges that can disrupt day-to-day operations for trucking companies.
To stay on the road, a good solution is to get a working-capital trucking business loan. This allows you to continue running your business without delaying deliveries or selling off some of your trucks.
From my experience supporting trucking businesses, the key to selecting a suitable loan is to determine your cash flow, why you need the funds, and how quickly you would like to receive the funds. Below, I list the six primary categories of trucking business loans. I provide information about what lenders look for when processing a loan request, and how to select a category that aligns with your trucking business.
Here's a comparison detailing the six most common trucking business loan options with typical loan amounts, rates, and terms offered by Clarify Capital.
| Loan type | Loan amount | Rates | Repayment terms | Best for |
|---|---|---|---|---|
| Equipment financing | Up to 100% of equipment value | 4% to 45% APR | 12 to 72 months | Purchase or lease new trucks, trailers, tools |
| Term loan | Up to $5 million | 6% to 12% APR | 6 months to 10 years | Expand fleet size, pay big bills, working capital |
| Business line of credit | Up to $5 million | 6% to 14% APR | Revolving, 6 to 36 months | Manage daily cash flow fluctuations, recurring expenses |
| Invoice factoring | Up to 100% of invoice value | 0.5% to 5% per 30 days | 30 to 90 days | Business-to-business (B2B) haulers waiting on broker payments |
| SBA loan | Up to $5 million | Market-based (prime plus spread) | 5 to 25 years | Large expansion, commercial property purchase |
| Merchant cash advance | Up to $5 million | Factor rate 1.08 to 1.45 | 6 to 24 months | Urgent need for working capital, fluctuating revenue |
Six Types of Trucking Business Loans
I'll break down the details for each.
Equipment Financing for Trucks and Trailers
With equipment financing, borrowers can finance the purchase of a truck, trailer, or other equipment for their business and use the item as collateral to secure the loan.
At Clarify Capital, equipment financing supports up to 100% of the cost of equipment, with rates starting at 6% and terms of 12 to 72 months. Since the equipment is collateral, it's usually easier to qualify for an equipment financing loan than an uncollateralized loan. Interest charges on equipment financing may qualify as tax-deductible business expenses.
Many business owners use equipment financing to buy their first vehicles. Fleet owners use equipment financing to add trucks or increase capacity.
Term Loans for Fleet Growth and Major Expenditures
A term loan is the classic definition of a small business loan. You borrow a fixed amount of money and pay it back over a predetermined period at a fixed interest rate.
Clarify provides term loans with maximums of $5 million, rates from 6%, and short-term options ranging from six to 36 months, with either weekly or monthly payments. Most term loans are funded within 24 to 72 hours after approval. Operators and fleets use term loans to fund major expenses, such as engine repairs or a down payment on a yard. They also use term loans to make acquisitions or expand their fleet.
Business Lines of Credit for Managing Seasonal Cash Flow Fluctuation
Business lines of credit work a lot like credit cards, but with substantially better terms. Lenders approve applicants for specified limits, and you can withdraw against those limits as needed. You only pay interest on withdrawn sums.
Lines of credit through Clarify support maximums up to $5 million with rates ranging from 6% to 14% APR with revolving terms from six to 36 months. Funds generally reach accounts within 24 to 48 hours post-approval.
This is my go-to recommendation for owner-operator fleets experiencing seasonal cash flow fluctuations or unforeseen expenses, such as spikes in fuel prices or delayed payments from brokers. When cash flow picks back up, you pay down what you borrowed, and the full line's available again for the next slow stretch.
Invoice Factoring for Same-Day Payment on Unpaid Invoices
If most of your income comes from brokers and shippers who pay bills according to net-30 or net-60 schedules, then invoice factoring is one way to convert outstanding invoices into same-day cash.
Here's how it works: You sell your outstanding invoices to an invoice factoring firm at a slightly discounted value. The invoice factoring firm provides you with an advance equaling up to 100% of your original invoice amount at closing. Afterward, the factoring firm directly collects payment from your customer when due. Fees charged by factoring firms are generally 0.5% to 5% per 30 days.
Factoring closes the gap between when you haul a load and when the broker pays. You haul a shipment Monday morning, but it won't be until 55 days later that your broker sends you payment via check or wire transfer. Factoring fills this gap so you can buy fuel, pay driver wages, or tolls, without depleting your savings or delaying deliveries.
SBA Loans for Long-Term Development
SBA loans are backed by the federal government. The Small Business Administration (SBA) does not make direct loans but rather guarantees a certain percentage of a loan made by an authorized lender, reducing the lender's risk and giving the borrower lower rates and longer repayment terms.
Two of the most popular SBA programs for the trucking industry are the 7(a) loan and the SBA Microloan. Both allow for loans up to $5 million, with loan amounts under $50,000 no longer requiring collateral for SBA 7(a) loans.
Authorized lenders for all SBA loans require a personal guarantee from all individuals who own 20% or more of the business applying for the loan. SBA Microloans typically require collateral and a personal guarantee.
An SBA loan makes sense if you plan to invest in a significant expansion of your business, purchase commercial property, or build out a much larger fleet. Processing times for SBA loans vary from 30 to 60 days or longer. If you need access to funds immediately, consider the other loan options below before the SBA loan options.
Merchant Cash Advance for Rapid Access to Capital
A merchant cash advance (MCA) is not a loan. Rather than lending you a lump sum of money up front and charging you interest and fees on that principal amount, MCAs advance you money based on your anticipated revenues (your average monthly bank deposit). Once you accept an MCA offer through Clarify Capital, we can often process the advance and deposit the funds directly into your account within 24 hours.
The advance amount is determined based on your expected average monthly bank deposit, and our standard fee is charged as a factor rate ranging from 1.08 to 1.45.
Although MCAs are among the fastest ways to access cash, they are also among the most expensive. I recommend using MCAs only when other financing alternatives cannot meet your immediate needs, or when the potential returns of growing your business clearly outweigh the added expense associated with an MCA.
If you recently got a large contract and need another truck on the road within a week to fulfill its obligations, an MCA may be a good option. But if you just need consistent working capital throughout the year, I recommend using a line of credit instead (it's usually less expensive than an MCA).
Why Do Trucking Companies Borrow Money?
The primary reason most trucking companies borrow money is because of the high cost of operating a fleet. There are a limited number of ways owners borrow money, and here's where I see that money being spent.
Fuel and maintenance
Increasingly expensive diesel fuel and unpredictable maintenance expenses create cash flow issues that many trucking companies rely on loans to bridge.
Cash flow gaps
Net-30 and net-60 broker payments to customers create recurring cash flow issues throughout the year.
Fleet expansion
Borrowing money provides the funds needed to expand a fleet to service new customers.
Technology upgrades
Purchasing technology such as GPS tracking systems, ELD systems, and routing software can increase efficiency and reduce fuel consumption. However, the initial investment incurs a significant up-front expense that cannot be fully funded by retained earnings.
Seasonal hiring and insurance
Borrowing money enables hiring additional drivers during peak seasons or paying insurance premiums during renewal periods.
Lease vs. Buy
Choosing whether to lease or buy a commercial truck comes down to how long you intend to keep the truck, how much cash you have available for a down payment, and how much flexibility you desire in the truck you drive.
| Why leasing may be better | Why buying may be better |
|---|---|
| Less costly Leasing trucks requires a significantly smaller down payment than buying. This leaves more money available for the operational side of the trucking business, such as fuel, maintenance, and labor. | Ownership Each time you make a payment, you build equity that can be sold or borrowed against after the loan is paid off. |
| Repair costs Maintenance for leased trucks is included in the lease agreement. If a mechanical problem occurs during the lease, the repair is covered by the leasing company. | Long-term cost savings It is typically more affordable to finance a truck purchase over seven to 10 years than to continue leasing the same truck for seven to 10 years. |
| Latest trucks If you want to switch to newer model trucks every three to four years, then leasing may be the best option for you since it allows you to upgrade frequently. | More control Owning your trucks gives you complete freedom to do whatever you want, including customizing them, driving as many hours as you wish, and selling them at any time. |
If you decide to buy, it may be a good idea to start with equipment financing. The terms for equipment financing are usually more favorable than the terms offered by dealerships. Once you've completed paying off the equipment loan, you will fully own the truck.
Loans for New Trucking Companies
Most alternative lending companies, including Clarify, cannot lend money to newly formed trucking companies until they have been in business for at least six months. Below is how new companies normally get financing:
A strong business plan. Banks and Small Business Administration (SBA) lenders are interested in seeing projected revenues, price assumptions, and any signed contracts.
A decent credit history. Since new trucking companies don't have a business credit history, lenders rely primarily on your personal credit history. A minimum credit score of 600 increases your chances of getting financing.
A solid down payment. Putting 10% to 20% down on equipment shows your commitment.
Microloans through the SBA. These Microloans are available for amounts up to $50,000. Typically, Microloans require collateral and a personal guarantee from owners.
After you reach six months in business and generate $10,000 or more in average monthly revenue, there are many more financing options available. That's when most of the owner-operators I speak with add their second or third truck.
Preparing Your Loan Application
Knowing what lenders want before you apply means fewer back-and-forths and a better shot at the rate you want. While each lender uses its own criteria, there are key elements that appear on nearly every trucking loan application that I see.
Length of time in business
Most alternative lenders require applicants to be in business for at least six months before submitting a financing application. SBA and traditional bank lenders often require applicants to have been in business for two years or more. Equipment financing and invoice factoring may help finance some newer companies.
Credit score
Traditional lenders usually require a credit score of 650 or higher, while alternative lenders may accept scores ranging from 550 to 600. Scores above 600 usually result in lower interest rates.
Average monthly revenue
The typical minimum revenue threshold for alternative financing is $10,000 or more per month. Higher revenue levels mean you can borrow more.
Recent bank statements
Most lenders will evaluate three months' worth of bank statements to assess cash inflows and deposit history.
Credentials to operate a trucking company
Active Department of Transportation (DOT) and motor carrier (MC) numbers, valid commercial truck insurance coverage, and signed freight contracts demonstrate a level of responsibility and maturity that can improve an applicant's chances of securing financing.
Steps To Get a Trucking Business Loan
Below are the steps you should follow before applying for a loan:
Determine why you need the money. Do you need money for a new truck? Will you need money for payroll? Are you trying to launch a new route? Identifying why you need money will determine what type of loan you need. If you're looking to buy a truck, equipment financing is likely the way to go. A line of credit or a term loan could be used to fund payroll. A working capital loan could fund either of these, depending on how quickly you anticipate needing access to funds again.
Review your financial and credit information. Review your personal credit report and credit score. Also, review your business credit score and your current revenue stream before applying for a loan. Lenders will review all three.
Gather necessary documentation. You'll need three months of bank statements, a copy of your driver's license, your business employer identification number (EIN), and basic information about your business. Equipment financing will also require either an invoice or a purchase order (PO) for the item(s) you are seeking to finance.
Explore multiple lenders. Submitting one application at a time wastes time and can negatively affect your credit score. Using a platform like Clarify lets you submit a single application with a single soft inquiry to your credit report and receive multiple offers from multiple lenders.
Next, you're ready to apply! After completing Clarify Capital's online, two-minute application, you'll hear back from our advisors about your options.
How To Increase Your Chances of Approval
Here's how you can improve your odds of getting your loan approved.
Improve your credit rating
Paying down outstanding debt, avoiding new inquiries on your credit report, and catching up on past-due accounts can raise your credit rating 20 points, resulting in more attractive loan offers.
Maintain clean books and records
Keeping accurate financial records that show consistent monthly income reflects positively on your credibility with potential lenders. It also reduces the time required to process your application.
Consider secured options
If you have weak credit, equipment financing or invoice factoring may be more viable options since they use either the value of the equipment or the underlying invoice as security for the loan.
Show stable income
Lenders prefer to see stable income over several months rather than one month of exceptionally good income followed by several months of poor income.
Select the correct product
Selecting the right product increases your odds of approval. If you need emergency funding, for example, a merchant cash advance might be a good option, while an ongoing working capital need fits a line of credit.
Trucking Business Loans vs. Personal Loans
Business loans are a better option for established trucking businesses (six+ months) than personal loans, since they preserve personal credit and provide larger loan amounts. Here's how the two compare.
| Feature | Trucking business loans | Personal loans |
|---|---|---|
| Loan amount | $500K to $5M | $1K to $50K |
| Income tax treatment | May deduct interest as a business expense | Cannot deduct interest as a business expense |
| Credit impact | Increases business credit history | Shows only on personal credit |
| Document requirements | Business EIN, recent bank statement documents | Pay stubs and personal tax returns |
| Who can qualify | Newer owner-operator operations | Very new owner-operator operations or smaller needs |
